45 EU Regulatory Framework for Electronic
Communications
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11190/06
COM(06) 334 + ADDS 1-3
| Commission Communication: Review of the EU Regulatory Framework for Electronic Communications Networks and Services
Commission Staff Working Documents: Annexes accompanying the Communication — Proposed Changes, Impact Assessment and Draft Recommendation on Relevant Product and Services Markets susceptible to ex ante regulation
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| Legal base | — |
| Document originated | 29 June 2006
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| Deposited in Parliament | 6 July 2006
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| Department | Trade and Industry
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| Basis of consideration | EM of 23 August 2006
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| Previous Committee Report | None; but see HC 34-xxi (2005-06), para 9 (8 March 2006) and HC 34-xxiii (2005-06), para 7 (29 March 2006)
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| To be discussed in Council | To be determined
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| Committee's assessment | Politically important
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| Committee's decision | Cleared, but further information requested; relevant to any debate on electronic communications services and networks
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Background
45.1 The main aim of the new legislative package for electronic
communications introduced in July 2003 was a lighter, but comprehensive
and technology-neutral, framework, based on competition law principles.
It also aimed to streamline the entire regulatory process by limiting
ex ante regulation[112]
to what is strictly necessary and by rendering the regulatory
process as transparent as possible. It adapted the existing rules
to take account of the convergence between telecommunications,
information technology and media in evolving markets, where the
same services can be delivered over a variety of platforms and
received via a range of different terminals. Consultation and
co-operation are key features, in the light of the increased flexibility
given to National Regulatory Authorities (NRAs) to choose the
most appropriate tools for dealing with regulatory concerns as
they arise.
45.2 The regulatory framework consists of six Directives and a
Decision:
- Framework Directive: general principles, objectives
and procedure, focussing particularly on the powers and responsibilities
of the NRAs as the foundation of the new regulatory system;
- Authorisation Directive:
replaces individual licences by general authorisations to provide
communications services;
- Access and Interconnection Directive:
sets out rules for a multi-carrier marketplace, ensuring access
to networks and services, interoperability, and so on;
- Universal Service Directive:
guarantees basic rights for consumers and minimum levels of availability
and affordability;
- e-Privacy or Data Protection Directive:
covers protection of privacy and personal data communicated over
public networks;
- Directive on Competition:
consolidates previous liberalisation directives; and
- Radio Spectrum Decision:
sets the principles and coordination procedures essential for
the development of a coherent EU radio spectrum policy.
45.3 The Framework also establishes a number of committees
and policy groups to manage and implement the new system:
- Communications Committee:
which advises on implementation issues;
- European Regulators Group:
to facilitate consistent application of the regime;
- Radio Spectrum Policy Group:
to enable Member States, the Commission and stakeholders to coordinate
the use of radio spectrum; and
- Radio Spectrum Committee:
to deal with technical issues around harmonisation of radio frequency
allocation across Europe.
The Commission Communication
45.4 The 2006 Review of the Regulatory Framework
is a process the Commission is required to undertake under the
five directives. It starts with an assessment of the Framework
and how it has led to increased growth and competition, with greater
choice, innovative products and lower prices for consumers and
greater productivity and jobs for the European economy. Overall,
in 2005 the ICT sector was valued at €614 billion.
45.5 It then notes that the stakeholder consultation
elicited positive feedback on the effect of the Framework, though
(given that the market review process was not complete across
Member States) some felt it to early to draw definitive conclusions.
New entrants, cable operators, ISPs (Internet Service Providers)
and software and equipment producers noted that the Framework
had allowed the development of competition and innovation, facilitating
investment (€45 billion in 2005) and broadband penetration
(a major driver of infrastructure development, where countries
with strong competition between incumbents and cable operators
tended to have the highest penetration). The majority of respondents
considered that ex ante regulation hindered new investment
and should be phased out by 2015
45.6 Looking at technology and market evolution,
the challenge is "to ensure that the framework continues
to serve the needs of the sector for the next decade". The
main technological trends are expected to be a migration to all
"all Internet Protocol (IP)", the growing use of wireless
communications and wireless access platforms, deployment of fibre
in local access networks and the transition to digital TV: "Far
reaching impacts on existing network architectures, services and
consumer devices can be expected" — new competitors
for market players, new and innovative services for consumers,
with current "triple play" services (voice, Internet,
TV) being but the precursor of more sophisticated "bundles"
revolving around the continued blurring of boundaries between
products, services and devices. The Framework has shown itself
capable of addressing new technologies such as Voice Over Internet
Protocol (VOIP), but the provisions governing the management of
radio resources, which are critical to innovation and shared with
many other sectors, need to be adapted, "to avoid inappropriate
regulation".
45.7 The two main changes proposed are:
— a
more market-based strategy regarding spectrum management; and
— a reduction of the procedural burden
associated with the market review process under Article 7 of the
Framework directive.
45.8 The Commission also identifies other changes
that seek to
— consolidate
the single market;
— strengthen consumer and user interests;
— improve security; and
— remove outdated provisions.
45.9 The Commission Staff Working Document describes
these proposals in more detail; and an evaluation of these changes
and other options considered is in the associated Impact Assessment
document. They are helpfully summarised and discussed in his 23
August 2006 Explanatory Memorandum by the Minister for Energy
(Malcolm Wicks), as follows:
"(i) Spectrum: Here the Commission's
'New Approach to Spectrum Management' is essentially an endorsement
of their previous Communications in which they have advocated
a market-based approach to spectrum management. The specific proposals
include a presumption of technology and service neutrality in
terms of allocation of spectrum by national authorities and the
mandating of trading in certain spectrum bands identified by the
Commission. The latter would be effected through decisions of
the Commission that were subject to Member State agreement within
the Communications Committee.
"(ii) Streamlining Market Reviews: The
Commission is proposing a simplified procedure for the way in
which regulatory authorities report on their analysis of markets.
The main feature is a simplified procedure for markets, which
were found to be competitive in previous reviews, and those where
there are only minor changes from the previous review. They are
also proposing a Regulation to codify the procedures for market
reviews that would include a minimum standard for notifications
(i.e., the information that has to be supplied) how re-notifications
have to be conducted (after a Commission veto); and other streamlining
measures.
"(iii) Consolidating the Internal Market:
There is a number of measures suggested here the most significant
of which is a Commission veto on the remedies submitted by National
Regulatory Authorities (NRAs). Another important proposal includes
measures binding the way Member States Courts deal with appeals
from operators in relation to decisions from NRAs; where the idea
would be to set a criteria to limit the ability of a national
court to suspend a regulatory decision. The Commission also propose
measures in relation to Article 5 of the Access Directive (where
Member States can take measures against service providers that
do not have market dominance); improving enforcement mechanisms
for NRAs (allowing more rigorous penalties for anti-competitive
behaviour); and an obligation on NRAs to review 'must carry' rules
(where broadcasters are obliged to carry certain channels).
"(iv) Strengthening Consumer Protection and
User Rights: Here the Commission are proposing significant
measures to improve the information provided on prices and other
conditions to end-users. Among these are powers for NRAs to demand
price transparency for services (for example premium rate calls)
and an obligation for all operators to provide call location information
in relation to emergency calls. A significant dimension to user
rights is the current measures enshrined within the Universal
Service obligations. Here the Commission note a forthcoming Communication
in which the overall scope of universal service will be addressed.
However, outside of this they do propose, in the context of this
Review, the removal of the obligation on the provision of universal
directories or directory enquiry services. Also addressed within
this section is the issue of 'Net Neutrality' where the Commission
opine that current NRA powers are largely sufficient to deal with
deviant behaviour, the access to emergency services by the disabled
through the '112' number (tightening up of existing obligations);
and the introduction of a new mechanism to deal with e-Accessibility
issues.
"(v) Security: In reflection of the importance
of information security in relation to the confidence that users
have in relation to e-business; and thus the success of the Lisbon
Agenda, the Commission are proposing a number of measures. These
include new obligations on NRAs to monitor and implement, where
necessary, measures to improve the security measures that network
operators adopt in relation to their provision of services, this
including standards recommended by the Commission. Also the Commission
propose that network operators and Internet Service Providers
(ISPs) should be obliged to notify their customers of any network
security breaches that could result in the loss, inadvertent disclosure
or alteration of their personal data. Finally, on the security
agenda, the Commission propose enhanced obligation on all network
operators with respect to network integrity.
"(vi) Better Regulation: Removing Outdated
Provisions: Here the Commission propose a number of 'housekeeping
measures' which include the deletion of minimum set of leased
lines (old technology); the provision mandating numbering for
ETNS (European Telephony Numbering Space) and the Regulation on
unbundled access to the local loop (overtaken by competition in
the market)."
The Draft Recommendation
45.10 The Commission Staff Working Document, containing
a draft Commission Recommendation on relevant product and services
markets within the communications sector susceptible to ex
ante regulation under the Framework directives, encompasses:
an analysis of the competitive situation in the various markets
currently within the Recommendation; a study of how convergence
is affecting the market situation; a look at emerging markets;
and a draft Recommendation with a revised list of markets. The
Minister says that a new Recommendation would update that made
by the Commission on 11 February 2003 and (if made) would lead
to NRAs (OFCOM in UK) to re-analyse the need for ex ante
controls in their markets. He continues as follows:
"It is important, in the consideration of this
Recommendation, to look at the (so-called) 'three criteria' that
determine (under the current Recommendation) whether specific
markets should be subject to ex-ante (as opposed to ex-post) regulation.
These are:
i) that the market is subject to high and non-transitory
entry barriers;
ii) that the market has characteristics that
it will not tend over time towards effective competition; and
iii) that competition law by itself is not sufficient
to deal with the market failure.
"The draft Recommendation looks at these in
detail and their relevance to the current dynamics of the communication
markets in the EU. It also looks at how NRAs have the ability
to determine additional markets outside those in the Recommendation;
provided they fit the 'three criteria' test.
"The most important part of the document concerns
the analysis given to the examination of the markets that are
currently subject to ex-ante regulation. Here the first category
to be examined is 'Services provided at Fixed Locations (4.2.1)'.
Here the analysis looks at public telephone services, access to
data and related services and leased lines. In the former category
the analysis by the Commission looks at the competitive situation
with respect to telephony services and concludes that the retail
markets for local and international calls for both residential
and non-residential customers are largely competitive and thus
can be removed from the list.
"The second category (4.2.2) relates to 'Access
to Data and related services at a fixed location' which encompasses
wholesale markets for unbundled and broadband access. In both
cases the analysis concludes that these markets are of significance
to the competitive environment and thus should be retained as
markets within the Recommendation.
"The next category (4.2.3) is 'Dedicated connections
and capacity (leaded lines)' where the analysis concludes that
the retail market is essentially competitive and thus should not,
in general, be subject to ex-ante regulation. Therefore the only
markets recommended for inclusion in the Recommendation are the
wholesale terminating and trunk segments of leased lines.
"The next category (4.3) concerns services provided
at non-fixed locations (mobile services). Here the analysis considers
the relative competitive situation for access and call origination
on mobile networks, call termination and the market for international
roaming on public mobile networks. Whereas the retail markets
are considered to be competitive the analysis suggests there are
doubts as to whether the market for access and call origination
is truly competitive across the whole of the European Union; the
doubt being whether in some markets, despite apparent competition,
there is really competitive pricing for services. The conclusion
is, therefore, that there should be further consultation before
the access and call origination markets are deleted from the Recommendation.
There is, however, less doubt on the markets for call termination
and international roaming; where the consumer has an insignificant
influence on the costs they have to bear.
"The final market considered is that related
to Broadcasting Transmission. The picture here is pretty complicated
with a whole variety of services being provided across the Member
States on a number of different platforms; including DSL, cable,
free to air and satellite offerings. Further complication is added
in that the majority of National Regulatory Authorities have not
undertaken a market analysis with respect to this market. The
Communication, therefore, does not make a recommendation but leaves
the question, whether this market should remain in the Recommendation,
subject to the public consultation."
The Government's view
45.11 The Minister says that the thrust of the Communication
and associated documents is consistent with the policies advocated
by the UK since the adoption of the EU Framework in 2002, since
they endorse the fundamental belief of the Government that effective
regulation leads to greater competition in the market, increased
investment and innovation and enhanced consumer choice. He therefore
endorses "the overall strategy of the Commission in their
evolutionary approach of maintaining and, where necessary, improving
the Framework in line with the technological and business developments
the EU market is facing". However, he says that "there
are a whole host of issues to be considered", which he breaks
down into the following areas:
(i) Spectrum:
"Here we broadly welcome the proposals the Commission
have made. Ofcom have already taken a positive lead in introducing
market mechanisms into the management and allocation of spectrum;
and it is therefore good to see the Commission endorsing a similar
approach for the EU as a whole. It is worth noting that the proposals
do not (despite some recent press reports) include the notion
of a spectrum 'agency'; though they do advocate a mechanism whereby
the Commission would determine the spectrum bands in which trading
would have to be introduced within Member States. It will be important
to ensure that the detail of the latter does not hamper the current
Ofcom trading proposals.
(ii) Market Reviews
"The Market Review process is, in many ways,
the cornerstone of the whole Electronic Communications Framework.
It determines the methodology under which the various communication
markets are reviewed (and thus regulated) by the National Regulatory
Authorities (NRAs) and the way in which the Commission oversee,
and to an extent, control the process. The Commission, in the
light of experience, are suggesting a number of steps to improve
and streamline the process, which, in general we approve of. In
particular we believe it is sensible for there to be a 'fast track'
process for notifications where the market situation had not materially
altered and for notification to include a pre-determined set of
content. We need, though, to be convinced of the need for the
proposed Commission Regulation (effectively codifying the Article
7 process in a separate instrument).
(iii) Internal Market
"Here the proposals being made by the Commission
seem, in the main to be sensible and proportionate; it is clearly
important to take steps to improve the ability of companies (such
as BT in our case) to carry on business in other Member States
with as few barriers as possible. We also support the Commission's
view that measures need to be looked at to limit the detrimental
affect of the Appeals systems in Member States. It is clear that
in some jurisdictions (not the UK) the incumbent routinely appeals
to national courts as a way of delaying NRA decisions and thus
putting competitors out of business. We do, though, have concerns
on the Commission proposal to take powers to 'veto' the remedies
that NRAs determine are necessary to impose upon operators with
significant market power. We think that given the considerable
differences in the 25 markets across the EU (especially in terms
of infrastructure development), NRAs need freedom to continue
to set their own remedies.
(iv) Consumer Protection
"We agree with the Commission that enhanced
consumer protection should be a key objective in the Review of
the Framework; especially in light of the rapidly changing business
models that are already providing consumers with a baffling array
of choices. We thus welcome increased powers for NRAs to determine
price transparency (especially in relation to premium rate services)
and to insist upon caller location information, where technically
feasible, in relation to calls to emergency services. On Universal
Service we agree with the Commission that a fundamental review
is required in light of convergence, though are a bit disappointed
that they have failed to make a decision in this Review process.
The two minor changes proposed, removing directories (of phone
numbers) and directory enquiry services from the scope of universal
service, seem sensible, these already being competitive services
in the UK. We also agree with the Commission that more can be
done to strengthen the rights of disabled (something the UK have
been championing in other fora) and thus welcome the idea of a
new regulatory mechanism; though are disappointed on the lack
of ideas from the Commission about how this might be achieved.
Finally on the issue of 'Net-Neutrality' we agree with the assessment
made that in general competitive and open markets should prevent
abuse by service providers in terms of either degrading the quality
or blocking third party services (which explain to an extent why
this issue has been seen as more significant in the US). We do
think, however, that the Review could usefully address the issue
and identify the particular powers the NRAs already have to punish
discriminatory behaviour by operators.
(v) Security
"Information security, as the Commission have
noted, is an important ingredient of the information society and
thus the Lisbon Agenda. A lack of confidence by business and consumers
in e-business and communication technologies — because of
the risk they pose to the security of business or personal data
— could have a detrimental affect on the whole of society.
In recognition of this the Commission focus is to be welcomed;
as is their proposal to give NRAs increased powers to require
information from service providers and, where appropriate, instruct
them to take specific actions. What is not so welcome, however,
are the proposed Commission powers to impose particular standards
on operators (we believe this should be an issue for NRAs to determine)
or to mandate them to report all breaches of security or loss
of service. We are consulting the Information Commissioner on
a further proposal that all service providers (including ISPs)
should be required to notify their customers of any breach of
security relating to their personal data."
45.12
On the Recommendation on Relevant Markets, the Minister
says:
"Although just a Recommendation, this paper
is important in the context of the whole regulatory framework.
That is because it specifies the markets that, in general, are
analysed by the NRAs and thus are susceptible to ex-ante regulation
if a provider is found to have significant market power. NRAs,
as explained above, can determine additional markets (as Ofcom
have done) or even decide not to analyse markets on the list (with
good reasons) but in general neither strategy has been adopted.
The Commission, in their comprehensive and detailed paper, have
rightly addressed the dynamics of the various markets and have,
in the spirit of better regulation, identified some markets, mainly
in the retail area, that, they believe, to be in general competitive
and thus candidates for removal from the list. Other markets they
have considered might be removed from the list include those relating
to leased lines (on the retail front), mobile access and call
origination on public networks and broadcasting transmission services
where content is delivered to end users.
"In an ideal world we would whole-heartedly
support moves to decrease the level of regulation across markets
and thus lessen the burden on the NRAs and the businesses they
regulate. Indeed, we would have no concerns about the markets
being removed from mandatory scrutiny in the UK. There is, however,
an issue across the twenty-five markets of the European Union
in terms of their inherent competition and the way they are regulated
by individual national regulators. We have, through the Article
7 process, seen several examples where NRAs have not always made
independent decisions and where there has not been sufficient
access rights given to competitors in some markets. This, together
with the fact that around a quarter of the market reviews across
the EU are still to be completed, leads us to doubt whether the
time is right for markets to be removed from the list. A further
factor is the trend towards operators providing bundles of products
to consumers (so called 'triple' play service) where there has
been evidence of the incumbent taking advantage of squeezing competitors
out of markets. The Commission noted that where such practices
are abused Competition Law could be applied; though there is little
evidence that this has been useful in addressing abusive behaviour
by incumbents; at least not in a time-frame that is useful for
consumers. We will, therefore, be looking to ask some searching
questions when we respond to the Commission proposals. We may
suggest that given the timing of updating the Recommendation is
in the hands of the Commission, they might perhaps further reflect
on market developments before adopting changes at the end of the
year. We are also considering recommending that the Commission
review the Recommendation more frequently than currently proposed,
e.g. every two years, to ensure it keeps pace with market developments."
45.13 With regard to the Impact Assessment
, the Minister says that the DTI will conduct its own impact assessment
when the subsequent legislative proposals, stemming from the Communication,
are proposed at the end of the year. In the meantime, he expects
that this extensive range of papers will be discussed in Council
working groups during the Autumn and might be subject to Ministerial
consideration at the December Telecoms Council.
Conclusion
45.14
On 29 March we considered Commission Communication 6700/06,
on "European Electronic Communications and Markets 2005",
which was the eleventh report on the overall market and the second
on the new regulatory framework. As we noted, it contained much
good news for UK consumers of a growing range of telecoms services,
and again demonstrated the importance of a commitment by public
opinion and government to market-based solutions, flexible regulation
and a strong, determined and independent National Regulatory Authority.
The exception to those glad tidings was mobile roaming charges,
where the Minister said that the Commission was considering a
Regulation on "this complex issue". We consider that
draft Regulation elsewhere in this Report.
45.15 So far as this first, very comprehensive,
Review of the new regulatory framework is concerned, the fast-moving
nature of the context is evident to all users of electronic services.
As the Commission itself says, the challenge is "to ensure
that the framework continues to serve the needs of the sector
for the next decade" and avoid "inappropriate regulation".
It is accordingly encouraging that the Commission is taking what
the Minister describes as an evolutionary approach, of maintaining
and, where necessary, improving the Framework in line with technological
and business developments. We are also inclined to endorse the
Minister's other comments, especially with regard to the Market
Review issue since, as we observed when considering the earlier
Communication referred to above, there is plainly a need for the
Commission to focus on those Member State governments and NRAs
who are dragging their feet.
45.16 It is right, therefore, for the Minister
to be proposing to "ask some searching questions" in
response to the Commission proposals. We should be grateful if,
at an appropriate time, he would let us know what they are and
what the response is.
45.17 In the meantime, we now clear the document,
which we consider relevant to any debate on electronic communications
services and networks.
112 Under ex ante regulation, prior control
is exercised, with the action in question being reviewed and approved
before it is taken, rather than being examined subsequently. Back
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